Increasing the minimum wage does little to reduce welfare dependency despite what supporters claim, according to an economic analysis Friday.
Increasing the minimum wage is a popular policy position. Supporters argue it helps lower-income individuals while saving tax dollars by making people less reliant on government assistance. The Employment Policies Institute, however, finds in its study, “The Effects of Minimum Wage Increases on Means-Tested Government Assistance,” the policy actually hurts the poor while doing little to reduce reliance on welfare.
“The most credible empirical specifications suggest that minimum wage increases are largely ineffective at reducing net program participation across a wide set of means-tested public programs,” the report details. “[It] results in some near-poor workers exiting the welfare rolls but induces other welfare recipients to remain on the rolls due to limited job opportunities.”
The report looks specifically at those programs, known as means-tested, that include work or training requirements. Many different local and federal programs are included in the current welfare system. The programs are designed to feed impoverished individuals, educate, provide healthcare, housing and many other basic necessities.
“Adverse labor demand effects of minimum wage effects are one important reason why minimum wage hikes are ineffective at reducing net means-tested program participation,” the report continues. “Poor target efficiency may be another.”
Employers have few options to off set the higher cost of labor after a minimum wage increase. Employers have been known to reduce hours worked or pay earned for workers. While some workers may begin earning enough to leave their welfare program, others are forced on because of a decrease in take-home earnings.
“Some near-poor workers are able to remain off of public assistance due to income gains from minimum wage hikes, while others are less likely to exit welfare due to adverse labor demand effects.” the report also notes. “The policy objective of alleviating government dependency and reducing government spending is unlikely to be substantially advanced by increases in state or federal minimum wages.”
The report finds only food stamp reliance goes down after the minimum wage is increased. Even so, the rate in which food stamp participation goes down is very small.
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